by Bill McBride on 2/13/2013 04:52:00 PM
Wednesday, February 13, 2013
Here is a price index for commercial real estate that I follow. CoStar notes a few key trends: 1) Sales volume has increased significantly (highest since 2004), 2) the percent of distressed sales has declined, and 3) it appears price increases have moved beyond core properties (the first to recover). There is much more in the release.
From CoStar: U.S. commercial real estate posts record gain in sales volume and broadening pricing recovery to close 2012
COMMERCIAL REAL ESTATE SALES VOLUME SURGED IN 2012: While rising steadily over the last four years, sales volume reached nearly $64 billion in 2012, a 22% increase from 2011 and the highest annual total since 2004. Activity spiked significantly in December as investors rushed to close deals prior to year-end. In fact, at 1,593, the number of repeat sales in December reached an all-time high since CoStar started tracking the property sales used in the CCRSI.Click on graph for larger image.
Pricing gains in the value-weighted U.S. Composite Index began earlier in the recovery and have been consistently stronger than pricing gains in its equal-weighted counterpart throughout much of the recovery. This reflects the more rapid recovery at the high end of the market for larger, more expensive properties. It also mirrors the trend in the recent recovery of market fundamentals for commercial property, in which demand for Four-Star and Five-Star office buildings, luxury apartments and modern big-box warehouses has outpaced the broader market. However, pricing trends suggest this may be shifting.
Despite the recent dominance of larger, more-expensive properties in pricing gains, momentum appears to be shifting to the broader market dominated by smaller, less-expensive properties. This shift is apparent in the value-weighted U.S. Composite Index, which posted a 4.3% year-over-year gain in December 2012, slowing from its double-digit growth rate throughout 2011. At the same time, year-over-year growth in the equal-weighted U.S. Composite Index accelerated in the second half of 2012 and registered 8.1% for the year. Taken together, the two trends signify that investors are moving beyond core properties and driving up pricing at the lower end of the market.
Distressed sales made up only 11.5% of observed trades in December 2012, the lowest level witnessed since the end of 2008. This reduction in distressed deal volume has been driving higher, more consistent pricing.
This graph from CoStar shows the Value-Weighted and Equal-Weighted indexes. As CoStar noted, the Value-Weighted index is up 37.1% from the bottom (showing the demand for higher end properties) and up 4.3% year-over-year. However the Equal-Weighted index is only up 12.8% from the bottom, and up 8.1% year-over-year.
Note: These are repeat sales indexes - like Case-Shiller for residential - but this is based on far fewer pairs.